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Bitcoin just broke $30,000, its highest level in months, and it’s not hard to see why.
Wall Street is getting ready for another massive swindle, and if it works it could drive the cryptocurrency a lot higher. And so, yes, some of the hot money is getting in first.
BlackRock
BLK,
the world’s biggest money manager, has filed papers with the Securities and Exchange Commission seeking regulatory approval to create a bitcoin ETF. Fund company Invesco, which handles $1.5 trillion in assets, quickly refiled papers seeking permission for its own bitcoin ETF. WisdomTree, another money manager, did the same.
There are no guarantees these ETFs will get regulatory approval. Previous attempts by smaller fund companies have been kicked back by the SEC. But BlackRock is another matter. The firm, which owns iShares, has $9.1 trillion in funds under management (enough money to run the entire U.S. economy, if they wanted to, for five months).
Imagine an iShares bitcoin ETF. Marketed nationwide by the company’s massive machine.
The goal: To get Joe and Joanne Q. Public to invest in bitcoin. An ETF makes it easy. You could own bitcoin easily in any retirement account, including a tax-sheltered one like an IRA.
Right now there are already a few niche bitcoin ETFs, but they own only futures contracts or the stocks of companies involved in bitcoin. The new iShares ETF would own “actual” bitcoin (if the term “actual” means anything in relation to a cryptocurrency). As the filing says, “The assets of the Trust (would) consist primarily of bitcoin held by a custodian on behalf of the Trust.”
In other words, BlackRock wants to do for bitcoin what State Street did for gold back in 2004.
State Street transformed the gold market when it launched the GLD ETF
GLD,
The fund made it much easier for ordinary investors to buy and own gold in their retirement accounts. It also made it vastly easier for professional money managers, including mutual-fund managers, to invest their funds in gold.
The ETF rocketed from $1 billion in assets to more than $70 billion over the next seven years, and other gold bullion ETFs followed suit. The gold price rocketed from $450 to $1800 an ounce.
Bitcoin, like gold, is ultimately a Ponzi scheme. The cryptocurrency, like the yellow metal, toils not, and neither does it weave. It does nothing. Earnings do not go up or down. It does not launch new products. So the only things that can drive the price higher or lower are supply and demand.
In the case of gold, new supply is limited.
In the case of bitcoin, it is (very nearly) capped. And allegedly only about one fifth of the total supply is ever traded.
That makes cryptocurrency the perfect play. The only thing you have to do to drive up the price is persuade a lot more money to try to buy it. Demand rises, supply stays the same—bingo.
In 2020 various people on Wall Street, including a number hedge-fund managers, apparently worked out that the public was ripe for a good bitcoin ramp. You could see the logic: People been stuck at home for months because of the lockdowns. They were awash with stimulus funds, bored out of their minds, and ready for a gamble.
Perfect!
So the campaign began, with various “gurus” going on TV and Twitter and everywhere else talking about how bullish they were of bitcoin. They drove it up from $11,000 to $60,000 in six months.
It then came tumbling all the way back down again, dropping below $16,000 by last fall.
Did the managers get out near the top? What do you think?
Don’t let me spoil the party. Maybe there is yet more easy money to be made in another bubble. Maybe this is a great trade.
But call me skeptical. These bitcoin ETFs haven’t even been approved yet, and if they aren’t this whole thing might fizzle before it even gets going.
Meanwhile it’s rare for the same asset class to have another successful bubble so soon after the first one burst. There are too many people around with singed fingers. The pain hasn’t faded.
Don’t we need a new generation of suckers to come along? The Nasdaq didn’t start going crazy again until more than a decade had passed after the dot-com bust.
Oh, yeah, and there’s also the small problem that bitcoin is completely worthless. Like all the other cryptocurrencies.
Sure, they might go to the moon tomorrow, or next year, or even over the next five. But eventually, some day, they are heading to zero. Why? Bitcoin is a product with no purpose and no “moat.” If I ever find an actual need for a cryptocurrency, there are—according to CoinMarketCap—already 26,000 of them to choose from. And it’s easy for the market to launch another one, or another 50, or another 5,000.
At least I can use gold for money laundering. Bitcoin isn’t even useful for that. It can be tracked.
That’s not to say it isn’t a good short-term trade. It might be a terrific short-term trade, especially if BlackRock is out there selling it to the public. But, as ever: Never confuse a trade with an investment. Take your profits while you can.
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